Friday, July 31, 2009

Carol Connelly:"Hey, we all have these terrible stories to get over, and you—"Melvin Udall:"It's not true. Some of us have great stories, pretty stories that take place at lakes, with boats and friends and noodle salad. Just no-one in this car. But a lot of people, that's their story: Good times, noodle salad. What makes it so hard is not that you had it bad, but that you're that pissed that so many others had it good."

It may be a powerful, ancient motivator for people to improve their station and situation in life—as real estate brokers, car salesmen, and cosmetics companies from time immemorial can attest—but it is corrosive, base, and potentially destructive as well. It can transform a person who otherwise feels content with his life into a shrill, grasping, dissatisfied shrew, just because he notices that someone else has something he does not. It can lead to all sorts of chronic social ills, like celebrity magazines, reality shows, and regularly recurring profiles of Donald Trump on national television.

It is usually blind and farcically selective, as well. We envy our neighbor's new Ferrari without realizing he bought it with life savings after learning he has six months to live. We envy the thin, wealthy, and fabulously connected Upper East Side socialite without knowing her hedge fund manager husband is an abusive, philandering stranger and her children hate and despise her. We envy the famous, the rich, the beautiful, and the better or more [insert your preferred adjective here] than us without understanding either the price they pay for such gifts or the gaping holes in their lives where we possess advantages they can only dream about. We envy advantages for which we do not understand the price, and we envy possessions and qualities which we would not be willing to sacrifice what is necessary to achieve them even if we knew what it was.

Envy is the weak and lazy sister to its hardworking sibling, ambition. It is a futile, foolish, and low emotion. And it is a favorite target for populist demagogues and pandering politicians alike.

Which brings me to the Attorney General of the State of New York, the Honorable Andrew M. Cuomo.

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Writing as The Deal Professor at The New York Times today, Steven M. Davidoff takes gentle umbrage at Mr. Cuomo's laughably obtuse report on the 2008 bonus compensation of the nine largest banks receiving TARP bailout funds:

I thought that this was the hard-hitting government study we needed into investment bank compensation and its relationship, if any, to the financial crisis. But I was ultimately quite disappointed.

Instead of an in-depth report on the compensation practices at Wall Street firms, both past and future, the only thing we got was compensation porn.

And uninteresting porn at that.

Echoing Professor Davidoff, I have to admit that I was similarly unimpressed. Although I realize most lawyers have difficulty writing numbers larger than "$500 per hour" on paper, I was staggered to see that over three quarters of the 21-page report were devoted to double spaced itemizations of random bonus trivia and cursory historical financials for each of the nine banks. This is the type of work a suitably trained investment banking Analyst—or, for that matter, a slightly brain-damaged monkey—could have knocked out in one evening after downing a couple of Red Bulls and some Adderall.

Anyway, the Professor correctly criticizes the Attorney General for failing to investigate or address key elements of his self-proclaimed brief, namely the relation of 2008 bonuses to compensation in prior years, the methodology the TARP recipients put in place to determine 2008 bonuses after they received government support, and the banks' justification for any bonuses they did pay last year. Other than collecting numbers from each bank in arbitrarily defined buckets—why, for example, look at the aggregate bonuses for the top 14 executives, exactly?—and doing a rudimentary and meaningless comparison of total compensation at each of the banks in relation to their historical net income, of all numbers, it doesn't look like the crack troops at the AG's office did much of anything with their vaunted access and limitless powers of subpoena.

But this is ridiculous. These are all empirical questions, questions which could have been investigated and addressed with each of the banks in turn without so much as breaking a sweat. It's not like the AG didn't have enough time, or his steely-eyed investigators couldn't get access to the trembling CFOs and Human Resource heads who were busy pissing their pants in fear of having Mr. Cuomo and his minions up their asses with a flashlight for the next ten years. Where are the answers to these simple questions? Did you just not do the work, Mr. Cuomo, or did you just decide to omit these results from your report, in fear they might portray a more nuanced and less politically marketable picture of Wall Street greed and excess?

* * *

I, for one, would have been very interested to learn exactly what percentage of these bankers' pay was granted in the form of non-cash compensation, like shares and options. It would have been even more illuminating to learn how much of the non-cash pay took the form of deferred compensation, pay which was locked up in the stock or options of the employing bank and which could not be claimed for years after its grant. Pay which, in my experience, a banker usually forfeits if he leaves the bank voluntarily before it vests, and pay which exposes a substantial portion of the banker's net worth to the risk and fluctuation of his employer's stock price. Risk the banker shares equally with public shareholders, with the niggling little exception that shareholders can sell their stock at any time, and the banker cannot. Of course, it would have been more illuminating to see this data broken down by level of pay, too, since it is usually the senior bankers making the big bucks who get stuffed with toilet paper, not the lowly-paid worker bees.

But I guess I see why you didn't publish that data for all the banks. It would have diluted the message to disclose for everyone what Goldman Sachs insisted you report for them: that 953 Goldman employees earned bonuses of $1 million or more, but no-one at the company took home more than $885,000 in cash. Sorta undercuts the image of fat cats dining freely on the shareholders' and taxpayers' dime, doesn't it? Joe Sixpack might not get so worked up about a banker's $10 million bonus when he learns that over $9 million of it is tied up in his firm's stock for up to five years, huh?

And while Professor Davidoff also expressed disappointment that you did not address bigger issues surrounding investment bank compensation, like the tension between individual performance and the performance of his or her firm or the potential mechanisms for clawing back previous pay, learning just how much bankers' and executives' pay is tied to the share price performance of these TARP banks—how many billions of dollars of employees' wealth is at risk along with that of shareholders and taxpayers—might just have answered both of those questions. Heaven forbid that we find investment bankers have been "playing the casino" with their own money, in addition to ours. Kinda muddles the populist message of outrage, dontcha think?

* * *

Anyway, I cannot get too outraged about this, I guess. After all, you are only a politician, and as such still reside somewhat lower on the scale of public approval and trust than investment bankers and other pond scum. In addition, your role as Attorney General makes you the chief prosecutor for the State of New York, and hence an advocate for the pursuit, discovery, and punishment of all criminals, real or perceived. It is not in your remit to be balanced and fair, or to use your powers of subpoena and investigation to discover the truth about anything. It is your job to build a case, and throw the bums in jail if you can. It is up to defense lawyers to offer up an opposing interpretation, and for judges and juries to arrive at a more nuanced and balanced vision of the truth.

And you are following a long tradition in New York, from Rudy Giuliani to Eliot Spitzer and beyond, of pursuing your version of justice—and a promising and lucrative political career, as well—in the kangaroo court of uninformed public opinion. Why befuddle the poor people with unsightly and confusing facts, when you can wrap yourself in the cloak of sanctimony and popular outrage to pelt a few fat cats in the stocks of public opinion? It's worked before, and you seem to be doing an excellent job.

So, while we are on the subject of accountability and pay for performance, Mr. Cuomo, I guess I would be interested to learn just exactly how much of my New York State income taxes was used to produce this disingenuous excuse of a marketing pamphlet for your upcoming gubernatorial campaign.

The fine and upstanding people of the State of New York deserve to know.